Financial market supervisors want to protest retail investors against potential fraudulent online funding schemes that have proliferated in recent years. A particular target is products that are endorsed by celebrities. Spain’s National Securities Market Commission, along with its European counterparts, is waging war on questionable practices, and in the United States, the Securities and Exchange Commission (SEC) recently fined Kim Kardashian for peddling crypto -change.
The International Exchange of Securities Commissions (Iosco), which brings together 130 national supervisory bodies, has issued a warning about the online marketing of financial products and the role of “finfluencers”, or digital influencers. A notorious example is the ad for the Crypto.com platform, featuring Matt Damon, that aired during the 2022 SuperBowl. urged them to take action on the matter to protect small investors.
The international organization believes that digitalization and social media are changing the way financial services and products are marketed to retail investors. And he believes that, particularly due to the Covid-19 pandemic, these factors have enabled investment services firms to reach a greater number of clients, who in turn have access to more investment services. .
The rise of social media and digital marketing has also transformed influencers into financial advisors. Iosco warns that influencer marketing is on the rise. The organization’s recent report sounded the alarm by pointing out that in some cases, watchdogs have jurisdiction over investment firms but not influencers.
The Dutch Authority for the Financial Markets (AFM) concluded last December that finfluencers run the risk of carrying out advisory tasks without having a license to do so. They also sometimes promote investment firms that trade high-risk products such as contracts for difference (CFDs), forex, or cryptocurrencies.
In Kardashian’s case, the influencer and businesswoman reached a $1.26 million settlement with the SEC. She was not fined for promoting a crypto asset, but rather for failing to notify that it was an advertising deal. Similarly, boxer Floyd Mayweather Jr. and music producer DJ Khaled were forced to pay $767,500 in 2018 for promoting an initial coin offering (ICO).
In its report, Iosco proposed that regulators consider requiring investment firms to have rules for online sales, including elements involving gamification, to avoid harming financial consumers. ESMA, the watchdog of European markets, is already working on a similar project. In May, he pointed out that “gamification techniques in trading apps and personal recommendations on social media can cause retail investors to engage in trading behavior without understanding the risks involved.”
In addition, the report suggests that regulators consider requiring investment firms to impose specific online marketing requirements. And he suggested mystery shoppers could be used to monitor how products are sold. The international organization recommended an initiative that was adopted years ago by Italy’s market supervisor, Consob, which has the power to shut down or block web pages and suspend the activity of financial systems.